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Our warehouse/DC engineer dives into the best practices and tools that the retailer put to work in order to expand its distribution network after it became the exclusive provider of beauty products for JCPenney stores.

When talking “beauty” at Sephora, it clearly isn’t skin deep. As a division of Europe’s premier luxury goods provider Moët Hennessy Louis Vuitton (LVMH), this retailer has carved a deep niche in the global beauty market, becoming a major presence in hundreds of retail centers across 24 countries and on the Internet.

In the U.S. and Canada, Sephora has grown to over 280 stores in a little more than a decade. Its unique open-sell store environment, staffed by a team of beauty experts, provides customers—who the company calls its “clients”—direct access to a broad range of product categories including skincare, color, fragrance, bath & body, smile care, and hair care. Launched in 1999, Sephora.com is now one of the Internet’s foremost beauty shopping sites, making it its largest North American “store” in terms of sales and selection of products and brands.

With such rapid growth over multiple channels, its logistics and supply chain team knew it needed to keep a close watch on its lone 316,000-square-foot distribution center (DC) located in Belcamp, Md. All through 2005, it periodically conducted capacity surveys with Pennsylvania-based supply chain consulting firm St. Onge to determine whether this one-facility distribution operation could continue to support such a high rate of expansion—each time, the facility seemed to hold its own.

But 2006 ushered in a new challenge for the logistics team.

Sephora became the exclusive provider of beauty products for JCPenney stores across the country, offering the same signature Sephora look in hundreds of JCPenney stores, but within a smaller footprint. For the first time, serious doubts were raised on whether the Belcamp DC could support this new marketing push.

In addition, the lease for the DC was about to expire. The team was left sitting with some difficult questions: Was it best to stay in its existing Belcamp facility or should it move to a new, larger building at an optimal site? Should it open a second facility? If so, where should it be and what should its mission be?

Management needed to weigh all of its options and plan the best strategy going forward. To do this, it decided to engage St. Onge in an in-depth network study aiming for a distribution network that could support its expansion while continuing to provide a superior client experience and maintaining a balance of costs.

To the beauty retailer, the key has always been client satisfaction. “We want to delight our client,” says Martin Flaherty, vice president of logistics for Sephora. “At the same time, we’re also looking at improving profitability, adaptability, and velocity. We want to align our resources to drive success across the enterprise.”

In the span of about 14 weeks, the project team built a model of the new distribution network, tested different scenarios using the latest software, and put together the best solution: a two-facility network with the existing DC in Belcamp and the selection of Salt Lake City as the optimal site for a second facility.

In June of 2008, Sephora opened its second DC in Salt Lake City, Utah, which has not only relieved the capacity in Belcamp, but also increased its customer service capability by being physically closer to its clients in the western half of the country, reducing its cost per unit shipped.

Over the next few pages we’ll dive into the best practices and tools the Sephora team put to work to transition to a two-facility distribution network that would shrink its order cycle time, getting products to stores quicker and reducing stock-outs.

About the Author

Maida NapolitanoContributing Editor

Maida Napolitano has worked as a Senior Engineer for various consulting companies specializing in supply chain, logistics, and physical distribution since 1990. She’s is the principal author for the following publications: Using Modeling to Solve Warehousing Problems (WERC); Making the Move to Cross Docking (WERC); The Time, Space & Cost Guide to Better Warehouse Design (Distribution Group); and Pick This! A Compendium of Piece-Pick Process Alternatives (WERC). She has worked for clients in the food, health care, retail, chemical, manufacturing and cosmetics industries, primarily in the field of facility layout and planning, simulation, ergonomics, and statistic analysis. She holds BS and MS degrees in Industrial Engineering from the University of the Philippines and the New Jersey Institute of Technology, respectively. She can be reached at .(JavaScript must be enabled to view this email address).

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